- 15 Marks
Question
LIS Limited is engaged in the manufacture of leather bags and shoes. The company commenced business in 2010. Due to downturn in the economy, which has significant effect on the purchasing power of customers, there has been a remarkable fall in the demand for its products.
The shareholders of the company, at its Annual General Meeting in December 2022, approved the request made by the management to relocate the factory from Bauchi State to Ibadan, Oyo State.
The following activities/transactions took place immediately after the Annual General Meeting:
(i) the company’s warehouse in Azare town, Bauchi, which cost N11 million in 2018 was sold for N16.5 million in June 2023. The amount formed part of the cost of the new factory in Ibadan, which was completed in December 2023 at N22 million;
(ii) in March 2024, the Bauchi factory, which cost N35 million in 2010 was sold to a private company owned by the Managing Director’s old school mate, for the sum of N55 million. The market value of the factory by an independent valuer, was put at N60 million, N50 million of the sales proceeds, was however applied to the construction of the factory in Ibadan, while N5 million was retained in the company’s bank account; and
(iii) the retained amount of N5 million is expected to be used in the acquisition of shares in a Nigerian listed company in 2025.
Required: As the company’s Tax Consultant, you are to:
a. Compute, in accordance with the provisions of Capital Gains Tax Cap C1 LFN 2004 (as amended), the:
i. Capital gains made on the transactions (9 Marks)
ii. Capital gains tax payable (if any) (4 Marks)
b. Comment on the provisions of the Finance Act 2023 in respect of application of roll-over relief on shares disposed. (2 Marks)
Answer
a. i LIS Limited
Computation of capital gains For 2023 assessment year
| N’000 | N’000 | |
|---|---|---|
| Sales proceeds | 16,500 | |
| Less: Cost of acquisition | 11,000 | |
| Capital gains | 5,500 |
Determination of rolled-over relief
| Lower of: | ||
|---|---|---|
| Amount re-invested in Ibadan factory | 22,000 | |
| Sales proceeds on disposal of warehouse | 16,500 | |
| Less: Cost of acquisition of ware house | 11,000 | |
| Amount rolled-over | (5,500) | |
| Net capital gains | Nil |
Computation of capital gains for 2024 assessment year
| N’000 | N’000 | |
|---|---|---|
| Sales proceeds | 60,000 | |
| Less: Cost of acquisition | 35,000 | |
| Capital gains | 25,000 |
Determination of roll-over relief
| Lower of: | ||
|---|---|---|
| Amount re-invested in Ibadan factory | 50,000 | |
| Sales proceeds on disposal of bauchi factory | 60,000 | |
| Less: Cost of acquisition of ware house | 35,000 | |
| Amount roll-over | (15,000) | |
| Net capital gains | 10,000 |
a. ii Computation of capital gains tax for the relevant assessment year
2023 assessment year Capital gains NIL Capital gains tax @ 10% of capital gains Nil
2024 assessment year Capital gains N10,000,000 Capital gains tax@10% of capital gains N1,000,000
b. The provisions of the Finance Act, 2023 in respect of application of roll-over relief on shares disposed
Section 31(6) of Companies Income Tax Act, 2004 is amended by Section 4 of the Finance Act, 2023. It provides for the inclusion of stocks and shares as assets that qualify for roll-over relief on disposal and re-investment on similar assets.
The provisions of the Finance Act state that, for the application of roll-over relief for shares pursuant to Sections 30 and 31 of CITA 2004, the proceeds from qualifying disposals must be reinvested within the same year of assessment in the acquisition of eligible shares in the same or other Nigerian companies.
- Topic: Capital Gains Tax (CGT), Tax Incentives and Reliefs, Tax planning
- Series: MAY 2025
- Uploader: Samuel Duah